Call it the Reserve Bank of India’s (RBI) insistence on financial inclusion, the need for foreign banks to be the do-gooders or cashing in on the wealth in the smaller cities have left them largely unharmed due to the slowdown. The fact remains that an increasing number of foreign banks are looking at Tier II and III cities to set up their retail banking branches.
This year, Standard Chartered is looking at opening branches in places like Dehradun, Sahranpur, Mathura and Kadappa. “These branches would have a heavy small and medium enterprise (SME) bias,” said Neeraj Swaroop, the bank’s regional chief executive, India & South Asia.
Barclays Bank began a branch on the outskirts of Ahmednagar, while ABN Amro has a branch on the outskirts of Agra.
In fact, of the 12 foreign bank branches that were opened by banks like Deutshce Bank and DBS between July 2008 and June 2009, six were in smaller cities such as Vellore, Salem Nashik, Moradabad and Surat.
In February 2005, the government and RBI had released a ‘Roadmap for Presence of Foreign Banks in India’ laying out a gradualist approach of the expansion of foreign banks in two phases—from 2005-2009 and beginning April 2009 after a review
of the experience gained in the first phase.
However, the RBI in April said given the current financial turmoil, it would be prudent to continue with the current policy governing the presence of foreign banks in India.
“The proposed review will be taken up after due consultation with the stakeholders once there is a greater clarity regarding stability, recovery of the global financial system, and a shared understanding on the regulatory and supervisory architecture around the world,” RBI Governor D Subbarao had said.
Though foreign banks had previously limited their operations to the metros and mini-metros, they have slowly begun to penetrate into smaller industrial towns and cities At end-June 2009, 32 foreign banks were operating in India with 293 branches.